If you are watching and waiting in this market, then you probably have a heavier allocation of stablecoins than usual. And if you are like us, you’d like to make some money with them while you wait.
We have an amazing low-risk opportunity to Earn 34% APY On Your Crypto Stablecoins where you could earn up to 34% without taking the risk of holding a more volatile token. Interested? Let us walk you through the entire process in the simplest way.
A Stablecoin Strategy in Terra Luna Ecosystem
We are working entirely in the Terra Luna ecosystem. This means working between apps will be fast and inexpensive. No bridging is required. There are a few wallet options if you don’t have a Terra wallet yet. The Terra Station Wallet is an excellent choice. Trust Wallet is good too. You will have fewer steps and this method will be easier with Terra Station.
Now, understanding we are only in the Terra ecosystem, here are the assets we are using UST, aUST, LUNA, and bLUNA. It seems like a lot but as you might guess, these assets are closely related to each other:
1. UST
UST is the algorithmic stablecoin of the Terra ecosystem. It’s the 3rd largest stablecoin behind Tether and USDC. Also, it’s the largest decentralized and algorithmic stablecoin. Today, it’s the 17th largest project with a $12 billion market cap. So this isn’t some tiny project with lots of risk in it.
2. aUST
aUST is an interest-bearing token you get from Anchor once you make your deposit there, which will be our first step in our method.
The beauty of aUST is that it’s like a receipt showing we have our Anchor deposit earning interest. Yet it’s like a liquid staking token too meaning we can use it to go earn money while we are earning money in Anchor too.
3. LUNA
LUNA is the governance coin for the Terra blockchain. You will need it and/or UST to pay gas fees for these transactions. As Terra explains in this Tweet thread, LUNA plays a vital role in helping UST maintain its algorithmic peg as a stablecoin.
1/ Extreme volatility produced a series of collateral effects across the Terra ecosystem, primarily derived from the short-term peg deviation of $UST and its impact on the volatility of $LUNA and levers of the Terra protocol. There’s a lot to unpack, so let’s dive in 👇
— Terra (UST) 🌍 Powered by LUNA 🌕 (@terra_money) May 24, 2021
Terra burns LUNA to create UST so the two have an inverse relationship when it comes to supply. The supply of UST increasing means the supply of LUNA is decreasing due to the burn mechanism.
So while this thread is about a volatile period last May, the safeguards in place including using LUNA meant UST only lost its peg for a couple of days. That’s a good sign of reduced risk for us.
4. bLUNA
The bLUNA token, or Bonded LUNA, is when LUNA is collateralized on the Anchor Protocol or LUNA is staking and earning staking rewards. It always trades at a slight discount to LUNA but has times when that discount grows.
Also, it has its demand for investors to use aside from LUNA. The #1 use is for collateral to borrow on Anchor. You can also lend it and borrow it at different rates than LUNA. That’s how we are going to use it when we show you our step-by-step for this method.
These are the 4 assets we will use in this method. Now, let’s take a look at the related dApps (decentralized applications).
Decentralized Apps Used in The Strategy
Now to the apps, we already gave you a hint that we are using Anchor, and we are. We are taking advantage of the “Anchor Earn program”. Their yield reserve to pay out on Earn just got a boost of $450 million.
Therefore, here we show you step by step how to deposit on Anchor so you can earn 19.5%. We will use 3 different apps with this technique. We will be using:
- Anchor Protocol
- Edge Protocol
- Your Terra Station Wallet OR TerraSwap
- Then back to Anchor one more time (but not repeating all 3 steps)
The Anchor Yield Reserves have received a $450m top-up and now sits at $507m. https://t.co/wqwPH7pTxE
— Anchor Protocol (@anchor_protocol) February 18, 2022
The 30% APY Stablecoin Method Guide
Now that you know what assets and apps we need, we can get into the technique. This is what you came for.
Step 1: Deposit UST into Anchor
If you are outside the US, you can buy UST almost everywhere. If you are from the US, you can buy it at Coinbase, FTX, Gemini, or Kraken as well as SushiSwap and Terraswap. We’ve shown you how easy this is in this how-to video. Go to Anchor, to the “Earn” tab, and the “Deposit” so you will start earning that 19.5% interest rate.
Also, you will receive the aUST we need for the next step here where you see in the Dashboard that 1 aUST = 1.195 UST. So for $1000 UST, we will get 836 aUST. That’s because the aUST earns the interest, not the UST. When you withdraw you get your UST back.
As we outlined in a recent video, this technique alone puts you well ahead of most investors with the combination of interest rate and safety. You may want to stop here. But to continue so you can get that extra 10%+, then onto Step 2.
Step 2: Lend (Supply) our aUST on Edge Protocol
Today, the interest rate on Edge Protocol is 0.02% on our aUST. So it’s not much but every bit helps.
We are supplying the aUST as collateral for the next step. And while you can boost to try to increase your returns, we don’t recommend it. The risk of liquidation where you lose the aUST and the Anchor returns you will be earning goes away is too high. So just take the small extra interest offered.
The Dawn Of Edge has successfully launched on @terra_money
The cap of $10M was filled in a few minutes after launch. We truly appreciate all of your support.
🧵🔽 pic.twitter.com/Pc2oNPJCOK— Edge Protocol (@EdgeProtocol) February 17, 2022
Step 3: Borrow bLUNA with our aUST on Edge at 1.99%
Now that our aUST is on deposit at Edge from Step 2, we will use it to borrow bonded LUNA (bLUNA).
Our aUST is quality collateral so our interest rate is low. We think the most you should borrow to try to reduce the chances of liquidation is 75% LTV (loan to value). 50% might be better and you still get good returns.
So from our original 1000 UST to 836 aUST, you should be just under $750 worth of bLUNA. In a year, you would pay $15 in interest.
Step 4: Swap bLUNA for LUNA in your Terra Station Wallet or TerraSwap
The Terra Station Wallet’s swap feature comes in handy here. As we said earlier, you will get slightly less LUNA as bLUNA trades at a discount. Today, the discount is less than 1% so it and gas are negligible.
Your total cost in gas and conversion fees should be no more than about $30 for all these transactions.
Step 5: Sell your LUNA for UST in your Terra Station Wallet or TerraSwap
Again, fast and cheap, you will use the same app (in a wallet or not) to swap your LUNA for UST. We have to do this in 2 steps instead of 1 because in the Wallet we cannot swap bLUNA for UST directly.
In TerraSwap, you can but it costs a little more. As you can see in this video, the 2 swaps in Terra Station (Steps 4 & 5) took less than 3 minutes to do and cost less than 50 cents or .50 UST.
There should be little slippage but our $750 borrowed may be now $740. We are being conservative here.
Step 6: Deposit UST in Anchor Again
This is a repeat of Step 1. But we will NOT repeat the other steps as the increased borrowing increases our chances of liquidation on our valuable interest-earning aUST. It would be foolish to risk it.
Besides, we have $740 earning 19.5% now.
Risks About This Strategy
We’ve said they are low. And they are. But that doesn’t mean they are zero. Let’s take a look.
1. Loan Liquidation
This is a risk but it’s low because our collateral for our Edge loan is aUST. If not a stablecoin itself, it certainly is stablecoin-like sharing many properties with UST. The collateral side of our bLUNA loan is pretty secure. The anchor could recalculate the conversion rate lower and that would work against us. OR this relates to risk #2.
2. UST Loses its Peg
If UST loses its peg there’s a chance we get hit with a collateral call on our loan. And even if the loss is not much, a loss in the peg would mean we earn less than our 30%+.
Here we can see the real risk of the $MIM $UST degen strategy. In a liquidation event MIM can lose its peg to the upside while UST loses its peg to the downside. This clauses the value of your loan to go up while the value of your colateral goes down. Add too much leverage and 👻 pic.twitter.com/IxWDHvUvin
— Farmer D Brown 🐉 Council Premier 🌔 $UST $KDA (@farmerdbrown) December 4, 2021
3. LUNA/bLUNA Volatile
Volatility in LUNA or bLUNA could affect one of our conversions along the way meaning we earn less. That’s even though we do not maintain positions in these other than our bLUNA loan. If bLUNA’s value is volatile, we may have to put up more aUST to secure our position based on Edge’s Risk Ratio requirements.
4. APR drops
If Anchor’s APR drops or Edge’s APR for our loan increases, then we will most certainly earn less.
5. Smart Contract Risk
Because we are dealing with one wallet and 3 different apps, and smart contracts keep things together, there is a risk if there is a hack or a bug in one of the contracts. These apps have been tested and have high TVL numbers but mistakes or hacks do happen. You need to be aware despite it not being a huge risk.
Calculations
Let’s see how we did with our $1000 investment:
- Deposit at Anchor Interest on $1000 @ 19.47% – $194.70
- Edge Interest $995 @ 0.02% – $0.19
- Borrow bLUNA at 75% LTV on Edge $750 @ 1.99% – 15$
- Deposit $740 at Anchor @ 19.47% – $144.07
So our 3 numbers in the plus column of $194.70, 19c, and $144.07 total $338.96. Subtract our $15 in Interest costs for borrowing bLUNA on Edge and we have $323.96 or 32.39% APY on our original $1000. Great return with low risk.
Research made by Abhay H.
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So if Luna (and bLuna) goes up, you will need to buy back bLuna at a higher price and make a lost. Borrowing and selling bLuna is short position.